FDIC’s ‘Supervisory Insights’ Highlights CRE Risk Governance

With the volume of commercial real estate loans held by FDIC-insured banks reaching a record of $2.4 trillion in 2019, the FDIC is focusing on CRE risk management. While “supervisory activities at FDIC-supervised [banks]show that concentrated [banks]are generally managing risk adequately,” the FDIC said, the agency issued one or more CRE-related MRBA in about a quarter of its overall supervisory activities at banks rated between CAMELS 1 and 3, according to the FDIC’s Fall 2019 Supervisory Insights publication.

CRE-related supervisory recommendations and MRBAs were most likely to address board and management oversight, portfolio sensitivity analyses, portfolio management and funding strategies, the agency said. More than half of bank reviews included some kind of supervisory recommendation related to board or management oversight, the agency said—most commonly regarding the setting and monitoring of concentration limits and sub-limits, as well as improvements needed in exception tracking and reporting and concerns about strategic planning.

For example, the agency said, some written policies lacked concentration limits or sub-limits, or these limits “appeared inappropriate” considering other factors. And while the agency noted “significant progress” made by FDIC-supervised banks on portfolio-level sensitivity analyses, the agency said that in some cases these analyses are “less evolved” than warranted by a bank’s CRE portfolio. More than four in 10 banks reviewed had supervisory recommendations related to these sensitivity analyses.